It’s all over your social media feed. You see reports of it in the news, in the posts of your financially savvy friends on Facebook, in the stories of celebrities on Instagram. What about that seemingly sweet lady who PMed you all the money she made?
I’m talking about cryptocurrency, of course. It’s everywhere and you’ve decided you can’t ignore it anymore. You know there is money to be made. But you also know that investing in cryptocurrencies can be extremely risky.
That’s why you are now stuck wondering whether to buy your own coins. Is Cryptocurrency Really Worth It? And what do you need to know before you take the leap?
Why should you consider investing in cryptocurrency?
If you’re thinking ahead, you’re probably especially interested in jumping on the cryptocurrency bandwagon. Eventually, it seems like the whole world is going digital (Metaverse, anyone?), and digital currencies are the next logical step. Some say that one day Bitcoin will be fully accepted as a form of currency. Time will tell. But you probably don’t want to miss out.
Another incentive to buy cryptocurrency is profit (check out this article for some interesting numbers). Some of the returns (though not all) were astronomical compared to the stock market or the basic savings account.
Of course, we have also seen epic crashes in the crypto market. And so, before you get too carried away with making money with cryptocurrencies, you need to know what you are getting yourself into.
Here are five things you should know before investing in cryptocurrencies:
1. Cryptocurrency is extremely unstable
Despite what those quick to brag about their profits want you to think, the market is volatile and it’s easy to lose money if you panic when prices drop.
One day I started writing an article about investing in cryptocurrencies because the prices were going through the roof and I really wanted to share the news. By the time I returned to edit the article a few days later, the crash had taken place and the prices of all kinds of cryptocurrencies had fallen.
Not only is the cryptocurrency market open 24 hours a day, 7 days a week around the world, wild price fluctuations can occur at any time.
And it doesn’t matter if you choose Bitcoin, Ethereum or something else. If you look at the prices of any coin, the fluctuations over the past few years have been very severe.
What does this mean for you?
- Don’t get into crypto if you can’t handle the volatility.
- Don’t panic and sell everything when prices drop.
- Invest only the money you can afford to lose.
I see too many energetic young people getting into cryptocurrencies before they even understand the basics of personal finance. Save some money, create this emergency fund, and learn how to budget first.
Don’t invest money that you want to access in the near future, especially if volatility scares you. For example, if you’re getting married soon or planning to buy a house, you shouldn’t risk your crypto money if your coins drop in value when you need access to the funds.
2. There are many ways to make money with cryptocurrency
You’ve probably heard the ridiculous success stories of how some rookie investor made a bank out of a meme coin. Remember that these stories are the exception, not the rule.
However, there are ways to make money other than finding the next dog coin to go to the moon (a common phrase in the community when something is about to take off).
How do you earn on cryptocurrency?
- Buy low and sell high. The most basic investment strategy. When a pullback occurs (coin prices fall), you buy, assuming that you will make money on the rise.
- Crypto mining. This involves using your own computer to support the blockchain in exchange for some coins. This usually requires a significant amount of computer power, although it is also possible to borrow your computer power if you don’t have the resources to do full mining on your own.
- Crypto rate. Staking involves depositing coins to validate transactions – you are essentially lending them to the blockchain in exchange for more coins. I personally just started betting and am a fan because of the interest rates.
- Cryptocurrency lending. Peer-to-peer lending, where you lend your cryptocurrency to another borrower at a predetermined interest rate.
3. Most cryptocurrency predictions are far from the truth
If you ever want to laugh, I suggest you google, “Ethereum price prediction” or any other prediction from the last few years. Predictions are always at every turn.
Experts honestly don’t know what’s going to happen. This does not mean that it is useless to follow the forecasts (we have published our own forecasts about the future of the cryptocurrency). But you must keep in mind that the prediction Any market is not possible.
What should you know as a new crypto investor?
It is important that you manage your expectations when investing in cryptocurrencies.
Naturally, we want to invest where we are going to get the highest possible return with the least risk. But you also have to accept that high returns come with high risks.
Predictions are not spoilers. Predictions are a glorified guess. You never know what might happen to the entire market. So, when following predictions, keep in mind that all of this comes with risks—however convincing those predictions may be.
4. Cryptocurrency scams are plentiful
“Find out how I turned a thousand dollars into a six-figure sum.”
You have probably seen some variations of this floating around. Maybe in Instagram posts or in your private messages or inbox.
I have personally received many messages on social media promising me astronomical profits from people posing as crypto experts. These messages are always unwanted and often seem too good to be true.
Charlatans have turned to the crypto space because they know it’s hard and that there are a lot of people who want to get rich quick.
What are typical cryptocurrency scams?
- Carpet-pull. Here, the token is a total scam and eventually it just disappears. In 2021 alone, these scams brought in over $2.8 billion.
- Pump and dump. Celebrities and influencers will pump the coin only to get rid of it when the value rises.
- Complete fraud. You send your money to a wallet only to never see it again. The person promises you amazing profits, but then disappears as soon as you send the money.
How to avoid cryptocurrency scams?
- Don’t buy random coins.
- Don’t send money to a wallet unless you’re absolutely sure it’s legal (see our pick of the best crypto wallets).
- Don’t follow complicated instructions that you don’t fully understand.
- Don’t take investment advice from complete strangers on social media.
- If this sounds too good to be true, it always is.
5. There will always be missed opportunities in cryptocurrencies.
If there’s one thing I can confirm about investing in cryptocurrencies, it’s that FOMO is prevalent. There will always be a coin that outperforms the rest on the market.
What does this mean for you when investing in cryptocurrency?
Take the time to learn about the different forms of cryptocurrencies before you go all-in. And recognize that you have limited resources – you can’t buy it all. There will always be better investments. Try not to worry about investments you didn’t make.
It seems like everyone and their grandmothers are investing in cryptocurrencies these days, and if you don’t, you’re missing out. But before you take the leap, I want you to know where you are investing your money.
Cryptocurrency can be a worthy investment. Just make sure you only risk money that you can afford to lose.
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